1. Field of the Invention
The present invention relates to fixed rate financing instruments issued for acquiring private funds and investments, offering a dividend or partially guaranteed by third parties to issuance, i.e., personals or entities other than the issuers/grantors and buyers of the financing instruments. The invention is also related to systems, servers, methods, programs and computer-readable recording media for establishing a market for the fixed rate financing instruments, and a method for directly offering the fixed rate financing instruments on-line. In particular, the financing instruments attract private funds and investments to finance public works or projects, such as infrastructure improvement projects.
2. Description of the Prior Art
Constructions and operations of public facilities such as roads and railroads, facilities for public benefits such as healthcare facilities and social benefit facilities are of great concerns of the residents who live in the related area, as they affect the basics of their life. It is difficult for them to walk or drive without decent roads. It is impossible for them to receive healthcares if there are no hospitals and other healthcare facilities when they get sick.
Therefore, those who live in an area where facilities that affect the basics of residents' life, i.e., infrastructures (basic facilities of a society) are poor try to move to another area where infrastructures are better. This creates a tendency for population concentration in big cities where those infrastructures are well established, for example, Tokyo and Osaka in case of Japan. The concentration of population causes problems such as longer commuting time, higher rents, smaller living quarters, and excessive traffic congestions.
Thus, each country of the world is planning to improve infrastructures such as roads and healthcare facilities in various regions in the country, but it is also true that the governments are experiencing severe financial tightness everywhere in the world in recent years. Thus they are having difficulties in financing public works such as infrastructure improvement projects from tax revenues alone. It is indispensable to infuse some private funds into public works such as infrastructure improvement projects in order to alleviate the burden on tax money under the current financial tightness.
There are numerous financial instruments for raising capital, as described in, for instance, in U.S. Pat. No. 6,148,293 to King titled “Method and Apparatus of Creating a Financial Instrument and Administering an Adjustable Rate Loan System”.
In infrastructure financing, the borrower arranges for an accepted guarantee-issuer to provide an irrevocable and unconditional guarantee in favor of a lender as beneficiary for repayment of a loan principal amount with all due interest for the loan term plus the lender's fees. The lender then provides or facilitates financing for public works projects through bond issuance and other means. As a means of acquiring private funds for investments in public works, a national or local government issues bonds. Bonds are essentially negotiable papers issued for acquiring funds from a wide range of citizens. If issuers of bonds are a national or local government or an organization related to a government, the bonds are called public bonds.
In such public bonds, there has been a type of bonds issued by a national or local government for the purpose of acquiring private funds for public works such as infrastructure improvement projects. Such bonds are called government guaranteed bonds. Government guaranteed bonds are bonds whose issuer's liabilities for the repayment of the principal and related interests are guaranteed by the pertinent government.
On the other hand, bonds whose issuers are a private enterprise are called industrial bonds. Industrial bonds include bonds related to the SPC Law (Law concerning Liquidation of Special Assets of Special Purpose Company). Bonds covered by the SPC Law are bonds related to so-called “project finance.” Bonds related to project finance are bonds issued for acquiring funds for executing a specific project. For example, if the use of the capital acquired by a bond issued in relation to the construction and operation of a commercial building to be erected in front of a railway station is specified for the project of “construction and operation of the station front building,” the bond is regarded as a bond related to the project finance and a bond related to the SPC Law. Key bond terms as shown in FIG. 3 include “Construction & Operation Bond for Y Station Front Building,” “principal and the interest shall be redeemable in 20 years from the issuing date”, “The redemption payment for this bond shall be available in exchange for this certificate at X Bank's main office or at any of its branch or agent” (e.g., “¥100,000,”), “If the redemption date happened to be a bank holiday, the payment shall be made on the next business day,” “The bond shall be void in 10 years from the day after the redemption date,” “Registration and replacement of the bond certificate for reasons of soiling or damage or any other handling of the bond certificate shall be available at X Bank's main office or at any of its branch or agent,” “Issuing Date: Apr. 1, 2002,” and “Redemption Date: Mar. 31, 2022,” etc. Different countries have different laws or regulations governing bonds or other fixed rate financing instruments. The SPC law of Japan is used as an example.
In the US, bonds pay interest that can be fixed, floating or payable at maturity. Most debt securities carry an interest rate that stays fixed until maturity and is a percentage of the face (principal) amount. Typically, investors receive interest payments semiannually. For example, a $1,000 bond with an 8% interest rate will pay investors $80 a year, in payments of $40 every six months. When the bond matures, investors receive the full face amount of the bond—$1,000. The interest rate on a floating-rate bond is reset periodically in line with changes in a base interest-rate index, such as the rate on Treasury bills. Some bonds have no periodic interest payments. Instead, the investor receives one payment—at maturity—that is equal to the purchase price (principal) plus the total interest earned, compounded semiannually at the (original) interest rate. Known as zero-coupon bonds, they are sold at a substantial discount from their face amount. For example, a bond with a face amount of $20,000 maturing in 20 years might be purchased for about $5,050. At the end of the 20 years, the investor will receive $20,000. The difference between $20,000 and $5,050 represents the interest, based on an interest rate of 7%, which compounds automatically until the bond matures.
PFI (public finance initiative; improvement of social funds using private funds) is intended to efficiently and effectively improve social funds by means of promoting constructions, maintenances and operations (including planning thereof) of public facilities utilizing private funds, management capabilities and technological capabilities so as to contribute to healthy development of national economy (Article 1 of Japanese Law concerning Promotion of Improvement of Public Facilities, etc., Utilizing Private funds, etc.). The relation between a private enterprise, a national or local government, residents, and banks, securities companies, etc. (hereinafter called “financial institutions”) in a scheme of PFI is as shown in FIG. 4.
A private enterprise prepares funds (32) by borrowing money from a financial institution, executes construction and operation of a public facility such as a road, a prison, or a public housing (33) to provide public services to residents (34). A national or local government pay considerations (35) to the private enterprise for the services the enterprise provides to the residents on behalf of the a national or local government. For example, if the public service is the operation of a prison, the national or local government pay considerations (35) to the private enterprise for operating the prison on behalf of the national or local government.
The residents receive the services (34) provided by the private enterprise and pay the considerations (36) for the services or service fees, and the private enterprise obtains income/profit (37) through its involvement in the public works. The residents in return deposit money (31) in the financial institution, and the financial institution lends money as investment (32) to the private enterprise and receives the repayment of the capital and the payment of the interest.
Thus, PFI is a means, which has been known for private institutions for obtaining funds from private financial institutions for the purpose of conducting public works such as infrastructure improvement projects. Also known in PFI is a method of obtaining funds through bond issues instead of borrowing money from financial institutions.
However, there is a problem as shown below in the abovementioned government guaranteed bonds, project finance bonds and PFI. For example, in case of government 100% guaranteed bonds, a government guarantees the bond issuer's full liabilities of repayment of principals and interest so that it may end up wasting a large some of tax money in fulfilling its guaranteed obligations. Therefore, it is difficult to improve necessary infrastructures using government guaranteed bonds under a tight financial condition.
In case of project finance bonds, there is another problem that bond buyers are generally reluctant to buy bonds intended for public works projects to be executed by a private enterprise, because, when a private enterprise, which issued project finance bonds, fails in operating public works and the performance deteriorates, there is no guaranty for repayment to the buyers of the project finance bonds. Therefore, it is also difficult to improve necessary infrastructures using project finance bonds as well.
Moreover, in case of PFI, investments by financial institutions to a private enterprise are generally insufficient, because the credibility of a private enterprise, which engages in risky public works, is generally too low. Therefore, it is difficult to attract private funds into public works through PFI because there is no guaranty for repayment for the bond issuers' liabilities for principal and interest repayment liabilities similar even if it is guaranteed by a government when the government is under a tight financial condition.
A document titled “Financing of major infrastructure and public services projects: Lessons from French experience throughout the would” by DAEI (French Ministry of Public Works, Economic and International Affairs Division), Private Financing of Public Infrastructure, Paris, 1994, describes various public-private partnership (PPP) models with different allocations of responsibilities: operations and maintenance contract, lease, build operate and transfer (assets), concession of service provision to users. The Private Participation in Infrastructure (PPI) Project Database of the World Bank tracks information on more than 2,700 infrastructure projects with private investment in the energy (electricity and natural gas), telecommunications, transport, and water and sewerage sectors in low- and middle-income countries.
In the model of Build-Operate-Transfer (BOT) or Build-Operate-Own-Transfer (BOOT), a private entity receives a franchise from the public sector to finance, design, construct, and operate a facility for a specified period of time, after which the ownership of the project and the facility is transferred back to the public sector. During the time that the project proponent operates the facility, it is allowed to charge facility users appropriate tolls, fees, rentals, and charges stated in their contract to enable the project proponent to recover its investment, and operating and maintenance expenses in the project. Even though the private management of public projects generates efficiency gains, BOT requires the private entity to raise its own funds, which is rather difficult.
Most infrastructure finance deals draw on an array of local and international funding sources, including syndicated commercial bank loans, bond issuances, equipment leasing, multilateral and export credit agency loans or guarantees, and equity commitments by project promoters and dedicated equity funds. For example, as described in Ch. 6 of the book titled “Global Development Finance 2004—Harnessing Cyclical Gains for Development” by World Bank, Vietnam's first international Build-Operate-Transfer power project, Phu My 3, with a generating capacity of 717 megawatts, reached financial closure in June 2003. Three-quarters of the funding took the form of debt, $40 million of which came from the Asian Development Bank; $99 million from the Japanese export credit agency, JBIC; and $170 million from a syndicate of international banks (Bank of Tokyo-Mitsubishi, Credit Agricole Indosuez, Credit Lyonnais, Fortis Bank, and Mizuho Corporate Bank). The equity component of $103 million was provided by the main sponsors (Electricite de France, Sumitomo Corporation, and Tokyo Electric Power Company), as shareholders' capital. The extended political risk insurance supporting the commercial tranche is provided by the Asian Development Bank, the Multilateral Investment Guarantee Agency, and Nippon Export and Investment Insurance. The financing structure of Phu My 3, with several types of debt, equity, and credit enhancements, is not unique to Vietnam or the power sector. It ensured access to international capital markets and enhanced efficiency by reducing overall financing costs, and extending debt maturity to match the project's underlying economics. Although the project involved several types of debt, equity, and credit enhancements, it did not provide one single investment instrument with characteristics of both debt and equity.
The traditional means for raising funds for business operations are roughly divided into two legal categories. One has the nature of equity to which an investor can not claim repayment of paid in capital against a company that had received fund from such investor as a means of fund for its business such as investment in stocks, and the other has the nature of debt which a investor can claim repayment of principal at the date of maturity as in the case of an investment in bonds. Considerations to investor for fund to business, in the case of stock, is “dividend,” and in the case of bond or loan is “interest.”
All securities stipulated by the Japanese laws are categorized in each of the two categories above, there are no securities which belong to both of them legally. Currently, in the U.S. and other countries, some fund raising means having middle nature between them, such as mezzanine funds. Private equity and mezzanine funds, typically structured as limited partnerships, are unregulated collective investment schemes, and have therefore been marketable to private individuals. It will takes a long period of time for governments to resolve the relevant issues, such as their tax treatment as debt or equity.
The variety of securities are rigorously defined as follows under Clause 1, Article 2 of the Japanese Law:
i) Government security,
ii) Municipal bond,
iii) Debt security issued by a juridical person under a special law,
iv) Specified corporate debt security prescribed in the Law Concerning the Mobilization of Assets,
v) Corporate debt security,
vi) Equity security issued by a juridical person established under a special law,
vii) Preferred equity security prescribed in the Law Concerning Preferred Equity Contribution to Cooperative Financial Institutions or instrument representing the right to subscribe thereto,
viii) Preferred equity security prescribed in the Law Concerning the Mobilization of Assets, or security representing the right to subscribe thereto,
ix) Share certificate, subscription right certificate, subscription warrant certificate,
x) Beneficiary security of an investment trust or foreign investment trust prescribed in the Law Concerning Investment Trusts and Investment Corporations,
xi) Investment security or foreign investment security prescribed in the Law Concerning Investment Trusts and investment Corporations,
xii) Beneficiary security of a loan trust,
xiii) Beneficiary security of a special purpose trust prescribed in the Law Concerning the Mobilization of Assets,
xiv) Such promissory note issued by an juridical person to raise fund necessary for its business as may be prescribed by an ordinance of the Cabinet Office (Commercial paper),
xv) Security or instrument issued by the government or a juridical person of a foreign country that has the nature of any security or instrument set forth in i) through ix), or xii), xiii) or xiv) hereof (Foreign share certificate, foreign commercial paper, etc.),
xvi) Such security or instrument issued by a foreign juridical person representing the beneficiary right to a trust set up on the basis of loan credits of a person engaged in the banking business or any other form of money-lending business, or any other right similar thereto, as may be prescribed by an ordinance of Cabinet Office (Beneficiary security of trust, etc.),
xvii) Security or instrument set forth in each of i) through xvi), xviii) and xix) hereof, or security or instrument representing rights pertaining to trade in options contract on a security or to trade in over-the-counter options contract on a security that has the right to be regarded as security,
xviii) Security or instrument issued by a person who has received a deposit of a security or instrument set forth in i) through xvii) hereto and issued in a country other than one in which such security or instrument on deposit was issued, representing the right pertaining to the security or instrument on deposit (ADR, etc.), or
xix) Such security or instrument other than those set forth in each of the i) through xviii) hereto as may be prescribed by a Cabinet order as one that is deemed to require the assurance of the public interest or the protection of investors in the light of its liquidity and other circumstances (Certificate of negotiable deposit issued by foreign juridical person).
Accordingly, all securities stipulated by the Japanese Law are categorized in each of the two categories of debts and equity, there are no securities which has the characteristics of both legally.
In Japan, the classification between equity and debt is approached through the view of what kind of legal formality has been adopted, there is no security that has been developed having characteristics of both, and they are distinguished by a standard: if an instrument has been adopted using the legal formality of equity, although it also has a nature of debt, it shall be treated as an equity; and if an instrument has been adopted using the legal formality of debt, although it also has a nature of equity, it shall be treated as a debt. For example, a “Subordinated Loan” is popular in Japan and is utilized by the government to pour public funds into some financial institutions. Although a “Subordinated Loan” can be categorized as having a middle nature because, when the debtor becomes insolvent, it is inferior to a normal loan regarding superiority of repayment, but is superior to a repayment of capital to an equity holder, a “Subordinated Loan” is legally categorized as a debt, and a compensation/payment is “interest” which the rate of such interest is usually higher than that of an ordinary loan.
SEC is the governing body in the US oversee the bond markets to protect investors by ensuring accurate information disclosure for valuing companies and securities and ensuring efficient secondary markets for debt issuance by corporations and state and local governments. While institutional investors dominate the bond markets, retail investors' participation is on the rise. U.S. households hold more corporate debt than municipal bonds. Approximately 65% of trades in investment grade, high yield and convertible debt are under $100,000 in size, a range assumed to represent retail activity, and there are comparable levels of retail activity across the spectrum of credit quality.
The members of the National Association of Securities Dealers, Inc. (“NASD”) must report transaction information on transactions in all corporate debt instruments, including both investment grade and high-yield debt securities, within 45 minutes of execution. Professionals access the Trade Reporting and Compliance Engine (TRACE) Data on a “real time” basis (as long as they are undated, not when the transactions are matched) through the TRACE website or market data vendors, and many more access it on a delayed basis. While most corporate bond trades are now reported to the NASD, not all of that data is disseminated to market users. So far, the NASD disseminates transaction information on more than 4,700 securities, including large issue investment-grade bonds, 50 high-yield bonds, and an additional 120 BBB-rated bonds. These bonds account for about 70% of the dollar value of trading activity in investment grade bonds, including the most actively traded bonds. The NASD's Bond Transaction Reporting Committee (“BRTC”) continues to discuss the next phase of dissemination of trade data for all remaining bonds. The remaining bonds include the smaller investment-grade instruments and high-yield bonds, in which there is considerable retail and institutional interest. It is these types of high-yield bonds—offering higher interest, yet lower quality—where pricing decisions are the most difficult and where real-time information would be most beneficial to investors and dealers as well.
Most corporation bonds are unsecured debt obligations backed only by the issuer's general credit and the capacity of its cash flow to repay interest and principal. Once a bond issue is closed, debt service payments are made by the issuer to the bondholders through a paying agent or trustee, which is a bank chosen by the issuer. If the bond issue ever goes into default, the paying agent or trustee usually represents the bondholders in remedial proceedings against the issuer. Guaranteed bond come with a guarantee of one corporation's bonds by another entity. For example, bonds issued by a subsidiary may be guaranteed by the parent corporation. Or bonds issued by a joint venture between two companies are 100% guaranteed by both parent corporations. Guaranteed bonds become, in effect, debentures of a guaranteeing corporation and benefit from its presumably better credit. Sometimes, it makes economic sense for the issuer to pay a third party to guarantee the bond issue which is called credit enhancement. An insurance company may issue an insurance policy 100% guaranteeing payment of debt service on the bonds, or a bank may issue a letter of credit to 100% guarantee the bonds.
In US, some bonds have characteristics of equity but still fall into the category of debt. For example, income bonds or revenue bonds are bonds that promise to pay interest only when earned by the issuer, and failure to pay interest does not result in default. As such, it is unattractive to private investors. As another example, combination bonds are bonds with double guarantee. A combination bond is guaranteed by revenue generated from the project that the bond is financing and guaranteed by the full faith and credit of the government issuing the bond, i.e., an unconditional commitment to pay 100% of interest and principal on debt. Although they are fully guaranteed by a government, when the government is under a tight financial condition or suffers from big spending or trade deficits, the government gets unduly burdened and investors get cold-feet.
There is a need for a fixed rate financing instrument having characteristics of both debt and equity to provide sufficient confidence to private investment without unduly burdening governments or third parties to the issuance of such a financing instrument. Once such a new financing instruments become available, there are needs for a method for establishing a market for them and for a method for offering them on-line.
A stock or bond newly offered for sale by a corporation or a government entity, usually through an underwriter or a private placement. A private placement is only available directly to institutional investors, such as banks, mutual funds, insurance companies, pension funds, and foundations, which does not require SEC registration, provided the securities are bought for investment purposes rather than resale. To newly offer a stock or bond to the public, an underwriter or underwriting syndicate is indispensable, which guarantees purchase of all shares of stocks or bonds being issued by the corporation or government entity, including an agreement to purchase by the underwriter if the public does not buy all the shares or bonds to assume risk. The SEC requires: offers cannot be made before a registration statement has been filed with the SEC; only oral offers can be made after a registration statement is filed; written offers can not be made until the registration statement is declared effective by the SEC staff; offers can not be accepted until a registration statement becomes effective; and after a registration statement is declared effective, sales literature can not be delivered unless accompanied or preceded by a final statutory prospectus.
An on-line offering registered with the SEC that is offered or sold—partly or wholly—using electronic media, including the internet, e-mails, or CD-ROMs. In some cases, not only are offers and sales made electronically, but also an issuer's and/or underwriter's delivery obligations are met electronically. The term “e-offering” typically is used to describe an underwritten offering in which one or more underwriters make offers and sales through a Web site and/or e-mails. Some of the underwriters who specialize in this area refer to themselves as “e-underwriters,” such as Wit Soundview®, Charles Schwabe®, e*Trade®, DLJdirecWR®, Hambrecht®, etc. Technology is leveraged to reduce costs, facilitate communication and keep better track of how an offering is progressing. Companies or underwriters use Web site prospectuses to reach a broader pool of potential investors. The underwriters easily build their “book” of indications of interest via e-mail. Potential investors easily research a company's and its industry's prospects. Electronic delivery reduces printing and postage costs.
However, there are gray legal issues regarding e-offering which have not been addressed by the SEC or the courts in the US. Hopefully, more formal and informal guidance (procedures submitted by underwriters and issuers and then reviewed and approved by Office of Chief Counsel of the Division of Corporation Finance of SEC on an individual basis) will become available. For example, companies that conducted IPO Dutch auctions included: Ravenswood Winery Inc. (Feb. 4, 1999), Salon Internet Inc. (Apr. 19, 1999), Andover.net (Sep. 16, 1999), and Nogatech Inc. (Mar. 14, 2000). After the dot.com bobbles burst in 2000, Google.com had its on-line initial public offerings (IPO) in August 2004 in which the process of applying for newly issued shares was handled electronically (via websites). Morgan Stanley and Credit Suisse First Boston were named as the lead underwriters for the deal.
During 2000, there were several pioneers that used the Internet to issue debt off a shelf, such as Dow Chemical, Ford Motor Credit Company, Goldman Sachs, Discover Financial Services, PeopleFirst, and Fiat Spa. During 2000, several exempt issuers (i.e. which were not required to register their offerings or file periodic reports) issued bonds off a shelf using the Internet to varying degrees—including the World Bank, Freddie Mac, and Fannie Mae. Even though the amount of underwriting compensation typically charged in public offerings of investment-grade debt securities is less than 1%, which is below those charged in equity offerings, the issuers can choose to file without underwriters. There is a need to offer new bond or fixed rate financing instruments on-line to the public without mountains of red tape, expenses paid to the underwriters etc.
Direct Stock Purchase Plans are SEC-regulated and established by companies to enable investors to purchase company shares without the intervention of a broker and paying a commission. Larger companies with a liquid market for its stock tend to have direct stock purchase plans. Companies benefit from the ability to cross-market their products and services and raise capital inexpensively. Eligibility criteria, investment program procedures, and program features may vary substantially from program to program. Some companies administer the sale of stock directly through their corporate offices, while others use a plan run through a bank or a trust company, which may also functions as transfer agent. The shares may be retained by a stock transfer or trust company, or converted to certificate form and mailed to an investor. Upon the submission of a share purchase order, an investor will receive an immediate e-mail confirmation of the order as well as a list of the exact price of the shares purchased. Until now, the accepted practice for Direct Purchase programs are to aggregate all purchase orders submitted over the course of a week, semi-week, or a day (by 4:00 p.m.) and to execute them all at once. The purchase price will not be known until the purchase is completed at a later time. Such a process introduces a fair degree of uncertainty to the process and dissuades many potential investors from participating in the program. There is a need to offer new stock or bond on-line to the public with real-time pricing. In U.S., investors can buy bonds directly from the government through TreasuryDirect at http://www.treasurydirect.gov. Currently, there is no direct purchase plan for corporate bonds or other financing instruments issued by private corporations. There is a need to directly offer new bonds and fixed rate financing instruments on-line to the public or via a direct purchase plan.
The Bond Market Association published a survey in December 2004 titled “eCommerce in the Fixed rate Markets: the 2004 Review of Electronic Transaction Systems” which catalogs and describes all systems that allow dealers or institutional investors to buy or sell fixed rate products electronically. Online bond trading platforms have accelerated the development and implementation of value-added services to enhance the efficiency of electronic trade execution and reduce users' costs. Most corporate/agency bonds trade over-the-counter; nevertheless, there are some bonds called “listed” bonds or “exchange-traded” bonds that trade on the New York Stock Exchange. The OCT market is comprised of dealers that hold an inventory of bonds, who buy and sell for their own account. Others act as agents and buy from or sell to other dealers in response to specific customer requests. These OCT bonds are traded on the “secondary” market and are available at dealers. If an individual inventor sends a “firm” bid to a dealer for selling OCT bonds, the investor must be reachable by phone or email for the next hour or two. Usually firm bids are good for one hour. If the dealer has no inventory, it may take over well over an hour for the dealer's trader to call various other dealers and for the other dealers to get back to the initiating dealer with bids. At times, there may not be any dealer wanting to purchase the bond. Orders to sell are handled on a best effort basis only.
New York Stock Exchange (NYSE) requires all bonds to be traded in the Automated Bond System (ABS) that records bids and offers for inactively traded bonds until they are canceled or executed, and matches them on a price and time priority basis. Because bids and ask prices of inactively traded bonds aren't constantly changing due to demand and supply conditions, investors have difficulties to look for a quote. By electronically monitoring all inactive bonds, the NYSE keeps an inventory of bond prices for investors to check.
Users can access a database of all trades executed on the system and, in some cases, trades executed on other platforms or by voice. The National Association of Securities Dealers in the corporate market and the Municipal Securities Rulemaking Board in the municipal market are trying to expand their trade reporting systems in early 2005. Bond Exchange of South Africa (BERS) was formally licensed in May 1996 as a licensed financial exchange on which bonds and related products were to be traded and matched on the same trading day on which the trade is struck, and all trades must be reported and matched to BERS within one hour from which the trade is struck South African bonds are quoted and traded in yield, and are settled in price. There is a standard convention for converting between the yield and the price of a bond for a given settlement date. However, BERS does not process bond transactions as efficient as a stock exchange executes stock transactions. The Bond Market Association actively promotes and urges the SEC to establish a self-regulatory organization for the debt market. There is a need for a bond and fixed rate instrument exchange which processes transactions as efficient as the stock exchange executes stock transactions.
Bond market information is available at a website sponsored by the Bond Market Association with data form MSRB and Standard & Poor's (“S&P”). It divides bonds into Municipal Market, Government Market, Corporate Market, and mortgage-backed (MBS) and asset-backed (ABS) Market. As mentioned, in the US, bonds are not traded on an formal exchange, are thus considered over-the-counter securities. Most debt instruments are traded by investment banks making markets for specific issues. If someone wants to buy or sell a bond, they call the bank that makes the market in that bond and asks for quotes. The broker/dealer negotiate directly with one another over computer networks and by phone. Bonds tend to trade infrequently, making the bid-ask spread larger. Currently, there are formal exchanges providing or maintaining a marketplace for stocks, options, futures, commodities, or currencies, but not for bonds or unique fixed rate financing instruments. There is need for formal exchanges for bonds or unique fixed rate financing instruments